2002: The Year of the Apology

Earlier this fall, Safeway, a food retailer based in Pleasanton, Calif., took out radio and television ads apologizing to customers of Philadelphia-based Genuardi’s, a family-owned chain of grocery stories bought by Safeway in 2000. Safeway acknowledged that changes initiated by managers since the acquisition had created customer dissatisfaction, and it promised to do better.

The apology followed the release of industry figures showing that Safeway customers were beginning to defect to competing supermarket chains in the Philadelphia area.

It seems that 2002 is the year of the apology – on both the corporate and the individual level – with acts of contrition appearing regularly since the collapse of Enron in December 2001. Dennis Kozlowski, then CEO of Tyco International, kicked it off last spring when he apologized to investors for a $1.9 billion loss in the second quarter and layoffs of 7,100. (Soon after this apology he was indicted for alleged sales tax evasion and use of company funds for personal expenses, charges he has denied and presumably not apologized for.)

In the financial services industries, Merrill Lynch in May issued a public apology for emails from its analysts that “may have appeared inconsistent with Merrill’s published recommendations,” adding that the statement constituted “neither evidence nor admission of wrongdoing or liability.” In June, Hank Paulson, chairman of Goldman Sachs, gave a speech in which he said recent criticisms of the business community were “deserved” and then went on to suggest ways companies like his could help restore investor confidence. This fall, Citigroup’s Sandy Weill apologized for certain activities “that do not reflect the way we believe business should be done.” About the same time, James Rohr, chairman and CEO of PNC Financial Services Group, apologized for accounting irregularities that happened during his tenure.

Finally, McDonald’s apologized to Hindus, vegetarians and others in June for mislabeling French fries and hash browns as vegetarian. The fast food company apparently used vegetable oil that was impure and contained traces of beef as a flavoring agent. The settlement McDonald’s reached with complainants included a $10 million payment.

How effective are apologies like the ones offered by Safeway and McDonald’s? What do apologies signal? When should they be offered and can they backfire?

The ‘Sleeper Effect’

Issuing an apology as a strategy “is not costless,” says marketing professor Mary Frances Luce. “There are risks.” In the Safeway case, for example, if the store clearly states that managers made mistakes but that these mistakes won’t be repeated, then its apology can moderate customers’ anger and help reinstate their loyalty. “But the apology might serve to strengthen the negative associations in the customers’ mind between the brand and the problem. Safeway could end up solidifying” the idea that it mismanaged the Genuardi’s acquisition.

In addition, there is the “sleeper effect,” Luce notes. This refers to a situation in which a person is given a piece of information, and is also told that this information is not true. “When you test the person later about this information, however, he or she is more likely to rate the statement as true than if you had never told him anything.”

Practically speaking, this means that a company can’t predict which “aspect of their song and dance will be remembered over time,” Luce says. “A customer might remember that Safeway screwed up and that it apologized. A month later that person might remember mainly that Safeway screwed up.” The point is, the company should “apologize carefully, which means making sure that the most memorable part of its ad is something positive about the company, like it now has effective new procedures in place to make sure the screw-up won’t happen again.”

Marketing professor Steve Hoch notes another aspect of apologies that can be risky. When a company is apologizing for a mistake to a group of people, such as customers, who know about the mistake, then the “right way to do it is to spill your guts, lay the negatives on the table, and then try to refute those negatives.” It’s a kind of “boomerang approach, turning the negative into a positive …

“But the problem with approaches like these,” Hoch says, “is that firms tend to deal with a very heterogeneous set of customers. Not everyone needs to be apologized to. In fact, a massive apology can be risky.”

In the case of the recent corporate scandals, for example, there is probably a large group of people who don’t read about and follow these scandals in the press, Hoch suggests. All of a sudden the company apologizes for its inappropriate or illegal behavior. “A customer might say, ‘Hey, I didn’t know you were doing that kind of stuff.’ A company is essentially alerting customers who had a positive impression of the company to some sort of bad behavior they didn’t even know about. To the extent that a company can segment people so that it can apologize only to those who need an apology, that will be a more effective strategy.”

Chris Nelson is a vice president with Ketchum, a global public relations firm headquartered in New York, where he leads the issues and crisis management group. “Apologies can be very effective for companies if they are ready to take responsibility for whatever the problem was, and if they feel like they can make that apology without increasing potential legal liability,” he says. But apologies, he adds, can be “tricky: Done correctly, they can effectively position the company as part of the solution rather than a cause of the problem; done poorly or in the wrong situation, they might only ensure that the company will face huge legal judgments. The last several years are among the most litigious I have experienced, and fear of being sued drives a lot of companies to be overly cautious in their response to a crisis. That’s a shame because proper communications often can drain significant amounts of public animosity from a situation.”

Nelson distinguishes between an apology and an expression of sympathy or compassion. “We have worked with companies where people have been hurt or killed, and it is perfectly appropriate – and advisable – for companies to state that they have sympathy for the victims. That’s not saying they are at fault. However, in situations where companies are ready to take full responsibility for the event, an apology can be the best way to prepare the public to listen to solutions.”

Companies that Nelson advises in crisis situations are told to disclose the facts about the event (such as a product defect) as quickly as possible, and talk first about what they are going to do to fix it – i.e. set that expectation – and second, make clear what they will do to prevent it from happening again.

In cases where shareholders have lost significant amounts of money because of “inappropriate actions by corporate executives, new management can always apologize,” says Nelson. But that can be relatively ineffective. Instead, managers should try to demonstrate to shareholders that they have a plan for getting the company back on track and strengthening its overall financial condition – i.e. offering shareholders a future where their stock once again has value. Apologies tend to backfire, Nelson adds, “when they are not followed by actions that will rectify the initial problem.”

The effectiveness of Safeway’s apology, for example, remains to be seen. Marketing professor Patti Williams shops at a Genuardi’s story in the Philadelphia area. “I haven’t noticed any [improvement] in the store since Safeway made its apology,” she says, suggesting that Safeway has not followed through with actions that match the apology. “The apology was the right thing to do, but it needs to be sincere. If consumers start to perceive the apology is purely a persuasion tactic” to get customers to start shopping there, then these customers will start questioning the motivation behind the apology.

McDonald’s and the Worms

Apologies can frequently be part of a larger crisis management issue in cases where incidents occur that may or may not be the company’s fault. In these instances, corporations have several choices of action, such as offering expressions of concern, setting in motion steps to ensure the incident is not repeated, issuing an apology and so forth.

Perhaps the best-known illustration of effective crisis management is the Johnson & Johnson Tylenol case in 1982 in which seven people died from cyanide inserted into Tylenol capsules during the production process. The culprit was never caught and the tampering was repeated in 1986, resulting in one additional death. Johnson & Johnson, however, earned itself enduring praise for its quick response to the crisis, including a voluntary recall.

Luce remembers a case back in the 1980s when McDonald’s was faced with a rumor that its hamburger meat was made of worms. In response, McDonald’s quickly “put up big posters in some of its restaurants saying they don’t use worm meat, pointing out that worm meat is more expensive than beef, and so forth.”

A subsequent study by several marketing academics, Luce adds, “showed that McDonald’s would have been better off focusing on other things.” That study compared the strategy of directly refuting the rumor (as McDonald’s did) to a strategy that asked consumers for their opinions on unrelated aspects of the McDonald’s experience, such as its French fries and its restaurant playgrounds.

“Even though people didn’t really believe McDonald’s hamburgers contained worms, they would just as soon go to a place that was not connected to the idea of worms. So by using a survey to strengthen non-worm associations, (the French fries and playgrounds), rather than by immediately denying the rumor, the company would have had a more effective response,” Luce says, summarizing the results of the study. What this could suggest is “that an apology, or an immediate denial of a rumor, might paradoxically strengthen associations with the problem (in this case, worms). Sometimes distraction or dilution is the stronger route.”

Hoch remembers a similar situation several years ago when he was called by a reporter for a comment on a claim that Pepsi bottles contained mice. “Pepsi denied the whole thing early on, which I thought was a little risky,” Hoch said. “But they ended up being right. The whole thing was a hoax. Pepsi didn’t say they were going to check it out, or apologize. They flat out denied it.”

Coke wasn’t so lucky. In 1999, the company was criticized for responding slowly to complaints from 200 people in Belgium and France who said they had become nauseated and dizzy after drinking Coke. The complaints led both France and Belgium to pull various Coke brands off supermarket shelves and tarnished the soft drink company’s efforts to build their global brand. Coke never did issue an apology, and it turned out that the products in question were not tainted after all. But what was widely seen as Coke’s seemingly callous response to people’s concerns has become another textbook example of how not to act in a crisis.

As noted earlier, the Johnson & Johnson case had a different ending. One of the interesting aspects of that situation, says Williams, is that “Johnson & Johnson wasn’t responsible for the situation. They didn’t have control over it. But they did everything they could” to immediately take charge and reassure the public. In addition to voluntarily recalling the product, the company eventually discontinued the sale of Tylenol in capsule form and reintroduced the product in tamper resistant packaging.

The Need for Penance

Over the past few decades, researchers – including psychologists and business school professors – have studied the act of apologizing, along with related issues of trust and deception. For example, Maurice Schweitzer, professor of operations and information management, cites studies showing that “the two key elements for an apology are that it should be perceived to be sincere – it could be sincere and not be perceived as such – and it should be substantial. In other words, it should be accompanied by penance.”

Apologies that aren’t considered sincere are “referred to as ‘cheap talk,’” says Schweitzer, adding that in the business world, the way in which apologies are made has a lot to do with how they are perceived. Customers know that full-page ads taken out by a company as a form of apology are expensive, and therefore they are seen as both sincere and substantial. When a CEO or a top manager apologizes to employees for some particular behavior, that is seen as sincere. “The organization or the individual is incurring a cost, and that cost underscores the sincerity of the apology,” says Schweitzer. “This is different than an apology from an airline clerk to a customer whose flight has just been cancelled.”

Additional research on apologies looks at the question of attribution, suggesting the need for a clear cause of the harm with which an individual or company is associated. Apologizers need to explain why the event occurred, either by taking the blame themselves, or citing other factors, such as the weather, says Schweitzer, who along with Wharton colleagues John Hershey and Eric Bradlow recently completed a paper entitled “Promises and Lies: Restoring Violated Trust.”

In their paper, which examines the way trust is restored, the authors consider, among other things, the influence of words (cheap talk) and deeds on harming and restoring trust. The authors specifically look at the question of whether an apology, coupled with a promise not to repeat the deceptive behavior, is more effective in restoring trust than a promise alone.

Surprisingly they found that the apology added little to the promise as a means of restoring trust. They hypothesize that the apology in their study may not have been sufficiently substantial or sincere, because, for example, it was not accompanied by an offer of penance. Second, the apology “may not have made a sufficiently clear attribution for prior behavior.”

Schweitzer also talks about the power of forgiveness. “You notice this when you look at murderers during their sentencing. When they are not apologetic,” others tend to judge them especially severely. People want these murderers to be apologetic. “Our capacity to forgive is huge,” says Schweitzer. “An apology helps us do that.”

Watch Those E-mails

Is our hyper-litigious business climate, is it wise to apologize? The advice of the litigation counsel is “almost never to provide an apology except as part of a negotiated settlement or agreement, because an apology could conceivably be construed as some sort of admission of guilt,” says Larry White, former general counsel at a large research university who now teaches a course in business law at Wharton. “Once litigation starts, it’s pretty hard to get anybody to talk to anybody.”

Bob Borghese, an attorney who teaches in Wharton’s legal studies department, says the question of apologies and admission of liability arises a lot these days in “e-mails, where people will correspond on email thinking it is a conversation, not realizing that everything they are saying is in writing and can later be used against them.”

If a person wants to apologize for something in a situation where there is a potential legal dispute, he or she usually does it outside of a written record, Borghese says. “Even if you do apologize, you don’t couch it as an outright admission of liability.

“There are certain situations where I might advise someone to apologize, not expressly saying he or she was wrong but that maybe things could have been done differently,” he adds. “The suggestion would be that perhaps the situation wasn’t handled in the best way. But it would not be admitting liability. That is about as far as I would go.”

In many cases, however, it appears that apologies could actually make litigation less likely and/or cheaper. According to White, “It was astonishing how often the issue of apologies came up, particularly in the context of employment litigation law. It was almost as important to the plaintiff to feel that an apology was tendered as it was to recover money or even regain a job.”

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